Chile December Manufacturing Shrinks for Second Time in 2012

Jan. 30 (Bloomberg) -- Chile’s manufacturing index last
month contracted for the second time in 2012 on a decline in the
output of metal and chemical products, giving policy makers
little space to raise borrowing costs to cool a surge in
consumer spending.

Manufacturing declined 2.5 percent in December from the
previous year, compared with the median estimate of 15 analysts
surveyed by Bloomberg for a 1 percent increase. Retail sales
rose 11 percent from 2011 after climbing 10.9 percent in
November and 6.6 percent in October, the National Statistics
Institute said in a report published today.

The data helps confirm the economy is growing at two speeds
after retail sales increased almost four-times faster than
manufacturing in all of 2012. The central bank board has little
space to change the key interest rate because an increase may
stymie industrial output and a cut would further stimulate
domestic spending, economist Matias Madrid said by telephone.

“Risks are balanced, which means the central bank should
keep the interest rate on hold,” said Madrid, chief economist
at Banco Penta in Santiago.

The peso, which has gained 1.7 percent against the U.S.
dollar in the past three months, rose 0.1 percent to 471.27 per
dollar at 11:59 a.m. local time today.

Policy makers have kept borrowing costs at 5 percent for 12
straight monthly meetings. The key rate will rise to 5.25
percent by February 2014 after remaining unchanged for at least
the next six months, according to traders and investors surveyed
by the central bank on Jan. 22. Inflation in December eased to
1.5 percent, the slowest in 2 1/2 years.

Growth, Output

Production of wood, chemical and metal products contracted
in December from the previous year, offsetting gains in output
of paper, refined products and foodstuff, the institute said
today. There was one less working day as well as an extra
holiday in December from the previous year, it said.

Copper output in the world’s largest producer of the metal
fell 1.8 percent over the period to 513,344 metric tons,
according to today’s report.

Gross domestic product climbed 5.7 percent in the third
quarter from the previous year as investment leaped 13 percent
and private consumption gained 6.4 percent, according to central
bank data.

GDP expanded 5.7 percent in the second quarter and 5.2
percent in the first, and grew an estimated 5.45 percent for all
of 2012, according to analysts polled by Bloomberg.

Current Account Gap

The current account deficit widened to 7.4 percent of GDP
in the third quarter from a gap of 4.9 percent in the year-ago
period as exports contracted 3.4 percent and imports gained 2.5
percent. A monetary stimulus, while providing a boost to
manufacturing, would threaten to exacerbate that gap, Madrid
said.

“So long as internal demand continues with this level of
vigor, which impacts the current account deficit because of
excessive spending, the central bank clearly won’t reduce
rates,” Madrid said.

Two-year interest rate swaps, which reflect traders’ views
of average borrowing costs, were unchanged at 10:47 a.m. from
yesterday’s close of 5.22 percent.